The Abbott government has rescued its financial advice laws through an 11th hour deal with the Palmer United Party but the changes have drawn harsh criticism for increasing red tape and diminishing the rights of investors.

The regulations will allow financial planners associated with banks to continue to receive payments for directing customers towards the banks' own products.

Palmer United Party leader Clive Palmer has struck a deal with the Abbott government to wind back reforms to financial advice laws. Photo: Alex Ellinghausen

Finance Minister Mathias Cormann revealed in the Senate that the government had agreed with the balance-of-power senators to introduce further protections as a condition of their support for the unravelling of changes made under the previous Labor government.

Advertisement

It capped a tumultuous few days during which Labor tabled the government's reforms against its wishes and Clive Palmer said negotiations with the Coalition were not taking place when they obviously were.

The deal, first reported by Fairfax Media on Tuesday, caught Labor and the Greens by surprise and saw them attempt to block the changes with a motion of disallowance in the Senate.

The final Senate vote of 31-34 for disallowance meant the attempt to strike down the changes failed.

Labor has argued its Future of Financial Advice reforms were aimed at stopping the kind of fraud that ruined the retirement plans of investors who sought the advice of the Commonwealth Bank's financial services arm and lost their life savings.

In a letter from Mr Cormann to Mr Palmer, the government agreed to require financial advisers to act in the best interests of their client and prioritise their client's interests ahead of their own.

It also requires advisers to disclose to clients any payments they receive from product providers, give clients the right to return financial products under a 14-day cooling-off period, and change instructions to their adviser if they experience a change in their circumstances.

The regulations also specify that any instructions to alter or review instructions must be in writing, signed by the client, and acknowledged by the client.

The government has also agreed to establish an “enhanced public register” of financial advisers, including employee advisers, which includes a record of each adviser’s credentials and status in the industry.

The head of the government’s financial system inquiry, David Murray, expressed dismay on Tuesday that there wasn’t already a public register of approved financial advisers.

His inquiry recommends a register and higher trading standards.

The chief executive of National Seniors, Michael O’Neill, said the deal would do nothing to help investors or fix problems in the industry.

"On the surface it adds nothing to the issue at all, except potentially another layer of red tape, which was the reason why the government made its changes to start with. This was a grubby deal and Clive Palmer has treated older Australians with contempt the way he’s dealt with this today,’’ he said.

Mr O'Neill on Wednesday expanded on his comments casting doubt over Mr Palmer's claim that he was a friend to pensioners.

''I think they'll be looking long and hard and wondering whether Mr Palmer is all that he claims to be,'' he told ABC radio.

But Mr Palmer rejected suggestions he should have consulted with groups such as National Seniors.

''I've been dealing with banks for 40 years, and lobbyists and advisers,'' Mr Palmer told ABC radio.

''I didn't become a billionaire by listening to advisers tell me how to do it who don't earn half as much.''

The government's changes reduced red tape by $200 million a year, he said.

''I see that as a good saving for consumers and at the same time they're getting better regulation,'' Mr Hockey told ABC radio.

Shadow treasurer Chris Bowen said Tuesday's developments had ''humiliated'' the government and let down consumers.

''We saw the chaos of Mathias Cormann being humiliated, forced to read a letter out into the parliament with Clive Palmer sitting in the Senate watching the deal that he'd done be implemented by insisting that Mathias Cormann read his letter out into the Hansard of the Senate,'' Mr Bowen told ABC radio on Wednesday .

''I mean, for a government that said there would be no deals with minor parties under any political movement I lead, this just shows there's no election promise he won't break.''

Mr Bowen said the government's changes to the FoFA regulations had scored a ''daily double'' by reducing consumer protections from unscrupulous financial planners and increasing red tape.

''They've emasculated the requirement to work in the best interests of the client,'' he said.

“They have wrecked it. They watered it down so far that it is, in our view, no where near as effective as it was under our administration and needs to be going forward.''

Opposition Leader Bill Shorten said Prime Minister Tony Abbott had put the interests of the Palmer United Party leader ahead of Australian investors.

Mr Abbott had promised not to deal with minor parties, he said. ''This is the mother of all backroom deals and it's Australian investors and families who’ll pay for it,'' Mr Shorten said.

The head of the Financial Services Council, John Brogden, said the amended regulations would make financial advice more accessible and affordable.

David Whiteley, of the Industry Super Association, said the changes would not prevent bonuses and other forms of conflicted remuneration being paid to financial advisers.

214 comments

Does Palmer actually understand anything he did does?

Commenter

Alex

Date and time

July 16, 2014, 7:30AM

Wow I am feeling so rescued by Tony and Clive this morning. So this is 8 bills passed by Tony in 7 months compared with Gillard who passed 127 in her first 7 months. Action man Tony is rescuing the nation by doing nothing very much, not even getting a budget through. Way to go Tony. That's how you rescue the nation, look after the banks so they rip their customers off with immunity. Thanks Clive. Thanks Tony. Can hardly wait for bill number 9 and number 10 so I can get rescued some more.

Commenter

GOV

Location

Sydney

Date and time

July 16, 2014, 8:21AM

Winding back this legislation is ridiculous it's going to actually hinder financial planners.

Most people I know will put their hard earned money elsewhere. eg real estate and other safer investments. Why take high risks ?

Can you imagine doing business with any company that does not comply with safety regulations. It's the same thing. People are starting to wake up.

Commenter

Rod

Location

the Coast

Date and time

July 16, 2014, 8:31AM

Phew, Mathias has finally got through the changes that reduce consumer protection. Thanks Clive for caving in. I was concerned our banks might go under because are barely scraping by. Now at least they have a chance to earn some real money.

Commenter

KIDDING

Date and time

July 16, 2014, 8:36AM

From reading all the comments, many have been brain washed by Bill Shorten and the industry funds TV add campaigns. To think they can sponsor large sporting teams and consumers are not paying for it, plus slush funds!The positives with all the information now at the forefront of politics:- Consumers will become more educated about their superannuation. - The Bad eggs will be removed from the industry.- AFSL’s will become more accountable for their Authorised Representatives - Advice will become more affordable. Until you have sought personal advice (aligned or nonaligned) then who are you to comment?

Commenter

therealtruth

Date and time

July 16, 2014, 8:38AM

Yes I think he does Alex.....he and Abbott are mere chameleons who will say and do anything and con anybody for their political and personal gain and notoriety regardless of the consequences for the Australian public. They both deserve to go next election.

Commenter

JT

Date and time

July 16, 2014, 8:46AM

I'm sure Palmer does - they wound back changes that favoured the Union owned super funds. The changes help the small business planners and levels the playing field. Shorten and Labour initially put through legislation that heavily favoured there union mates businesses.

Commenter

Octi

Date and time

July 16, 2014, 8:53AM

Fact - Boomers are the target of these investment shysters.

Fact - Boomers are the biggest demographic

If you are a Boomer, heading towards retirement, ask yourself - are Abbott and Palmer helping the corporate criminals steal my money?

Vote with your pocket. Retirement at 70, no pension, savings stolen. Is this govt acting in your best interests?

Labor at its worst is ten times better than Abbott. At least Labor protected us from the corporate thieves.

Commenter

Axis

Date and time

July 16, 2014, 9:00AM

I'm pretty sure Palmer understands what he's doing - it's we who need to understand him better and treat him accordingly. This attention seeking billionaire buffoon who likes to be seen as the friend of the people is the friend of Clive and Clive alone. He doesn't need to speak to experts in the financial field before gutting consumers' protections - he's a billionaire! The fact that his money came from digging holes in the ground in an extremely miner-friendly environment is apparently irrelevant when it comes to expounding upon his vast knowledge of the financial planning sector...I didn't think anyone could make me as angry as our suppository of all wisdom, the PM who leads an open, transparent government of adults for an electorate that is tired of surprises, the PM who will not do any grubby, back-room deals with minor parties. It seems I was mistaken.

16 Jul
On the same day the Coalition successfully rammed through a windback of financial advice reforms by doing a "dirty deal" with the Palmer United Party, the Murray inquiry found conflicted remuneration structures "undermine" the ability of customers to get quality advice.

16 Jul
The Financial System Inquiry's interim report is not just about the banks. The inquiry has a surprising amount to say about superannuation, retirement incomes and financial advice. For example, the report questions whether gearing, or borrowing to invest inside a super fund should be allowed.

15 Jul
David Murray's assignment appears to have been more coloured by improving the operation of the system from the perspective of the consumer and the community rather than a desire to maintain the status quo.

15 Jul
The existence of ''conflicted remuneration'' – where advisers receive payment tied to the sale of a particular product – undermines the financial advice system, the financial system inquiry has found.